Kansas businesses, including bars and restaurants, must comply with 6 different types of business taxes, including retail sales tax. The current sales tax rate is 6.5% which can be collected and remitted electronically to theKansas Department of Revenue. Naturally, if you're a bar or restaurant owner, you're expected to uphold similar sales tax obligations to avoid being flagged for a Kansas sales tax audit. Any restaurant or drinking establishment that sells meals or drinks to the public collects and remits a 6.5% tax rate. However, sales tax is not imposed on the sale of liquor by caterers, clubs, or any drinking establishment, as the state applies a liquor drink tax of 10%.
We've compiled sales tax guidelines to help bar and restaurant owners be on the right track in their daily business activities.
Bars and Restaurants Sales Tax Rules
Restaurants remain in the same category as motels and hotels for sales tax purposes. In general, these establishments must collect and remit the state and local sales tax rates as per the location.
This section outlines how sales taxes apply to transactions in your restaurant or bar.
Meals and Nonalcoholic Drinks
Any business that regularly sells meals or nonalcoholic drinks to the public must collect and remit the Kansas sales tax. Examples of businesses include:
- Drinking establishment
- Private club
- Eating house
- Catered event
- Dining car
- Lastly, eating house
In case a restaurant offers catering services at a different location, it will apply the state and local tax rates for the location of the catered event.
In Kansas, restaurant owners usually add a mandatory gratuity to the customer bill. The mandatory service charge received by employees is considered wages and not tips as per the IRS. Therefore sales tax applies on sales of meals and drinks plus mandatory gratuities. However, the tip is exempt if the patron gives it voluntarily.
Free meals provided to employees who help in the selling or furnishing of meals at a public eating place are exempt from sales tax. No sales tax exemption exists if the free meals are furnished to non-employees or customers of the restaurant. When this happens, sales tax occurs on the cost of the meal.
Exempt Restaurant Sales
Meals, nonalcoholic drinks, and miscellaneous items sold to exempt entities are tax-free. These entities are the federal government, churches, and state subdivisions. For this reason, restaurants must obtain the correct and complete exemption certificate from the entity.
Restaurants and clubs must pay sales taxes on purchases of taxable services and tangible personal property. Since the restaurant is deemed the final consumer of the taxable property or service, it will pay sales tax on the total cost of the purchase.
A restaurant owner has exemptions on:
- Purchases for resale of food items served to customers as a prepared meal
- Items purchased in the form of an ingredient or component of the meal, such as drinking straws, paper bags, and paper napkins
- Purchase of electricity, gas, and water intended for food preparation
For more details on Kansas sales and use tax related to restaurants and bars, please check, Pub. 1540 Business Taxes for Hotels, Motels, and Restaurants and Pub.KS-1510-Kansas Sales Tax and Compensating Use Tax.
Kansas Sales Tax and Sales Tax Audit Facts for Bars and Restaurants
Kansas, as with any state, requires individuals and business owners to follow their sales tax rules. For bar and restaurant owners, they need to be in the clear with nexus, registration, collection, payment, filing deadlines, and more to avoid applicable penalties and interests.
Consequently, the pandemic impacted the revenues as well as how restaurants do business. In a Deloitte report, one of the findings shows that 67% of on-premise diners prefer digital food orders. This means business owners have to put in more resources to satisfy their customers' buying habits by investing in technology to cater to online ordering and payment systems. Further, they have to review the taxability of goods and services anew.
Bar sales were also undermined by the lockdowns, with retail sales in food and drinking places dropping to over 50% between February and April 2020.
What to Do During an Audit
Bars and restaurants operate in a complex industry, making them a likely target for sales tax audits by the department.
We have received multiple queries from clients wondering what to do when they are due for an audit. The best way to avoid unpleasant outcomes is to check your business records regularly. This is a form of preview where you comb through your sales and purchase transactions, exemption certificates, sales, and use tax returns and the accounting system.
Ensuring your records are in line improves your readiness to face the state auditor. Thus, provide the auditor with the necessary information and a conducive environment. However, be careful not to hand over transactions that could increase your final assessment.
If you're not in agreement with the assessment, you have the right to file an appeal within 60 days to the department. At this stage, it's vital to hire an attorney who can help you obtain a good ruling. The Kansas tax department then offers avoluntary disclosure program to allow the taxpayer to register and pay past tax dues voluntarily. The benefits of this program are, indeed, a limited look-back period of three years and no penalties for late filing. However, you must meet three conditions to qualify for the program; there's been no contact from the department orMultistate Tax Commission, you're not being audited for any tax, and you're not guilty of fraud or gross negligence.
Learn More About Kansas Sales Tax for Bars and Restaurants
Overall, restaurant and bar owners have to contend with many details regarding their sales tax obligations. Further, most restaurants may not be aware they are also subject to compensating use taxes. They could consider seeking professional assistance on Kansas sales tax help.
Need help with your Kansas sales tax obligations? Well, we have a team of CPAs and lawyers to keep your business compliant, including handling sales tax audits on your behalf. Thus, please contact us today.